Investing in energy stocks may be quite tricky due to the cyclical nature of this sector. Generally, energy stocks report outsized gains during periods of economic boom and trail the markets by a wide margin in recessions. However, here are three TSX energy stocks that should help you deliver steady gains across market cycles. Let’s see why.
Enbridge stock
An energy infrastructure behemoth, Enbridge (TSX: ENB) offers you a tasty dividend yield of 7.6%, making it attractive to income-seeking investors. Among the largest midstream companies in North America, Enbridge owns a diversified portfolio of cash-generating assets that are impossible to replace, providing it with a wide competitive moat.
Enbridge charges companies a fee to use its assets. The fees are tied to long-term contracts and indexed to inflation, resulting in stable cash in good times and bad. Moreover, the TSX giant owns a natural gas utility business and aims to expand its clean energy business, driving future cash flows and dividends higher.
Armed with an investment-grade balance sheet and a sustainable payout ratio, Enbridge has raised dividends for 29 consecutive years, showcasing the resiliency of its cash flows. Despite its massive size, Enbridge expects to increase dividends by 5% annually in the medium term.
Priced at 16 times forward earnings, ENB stock trades at a discount of 12% to consensus price target estimates. After adjusting for its dividends, total returns should be closer to 20%.
Brookfield Renewable Partners stock
A clean energy giant, Brookfield Renewable (TSX: BEP.UN) should be on your shopping list today. Down 50% from all-time highs, BEP stock offers you a dividend yield of more than 6%.
Brookfield Renewable’s management expects to grow dividends between 5% and 9% each year and deliver annual returns between 12% and 15% going forward, which is exceptional.
Around 90% of BEP’s cash flow is tied to long-term power-purchase agreements, or PPAs. Further, roughly 70% of its revenue is linked to inflation escalators, which should translate to steady cash flows across business cycles.
Brookfield Renewable is well positioned to meet the growing demand for clean energy solutions, given the worldwide transition towards renewables. It operates in verticals such as hydro, wind, solar, and energy storage and ended 2023 with a total capacity of 31,500 megawatts. With 143,400 megawatts of capacity in its development pipeline, BEP stock is a quality dividend-growth stock you can buy today.
Canadian Natural Resources stock
The final energy stock you can consider buying is Canadian Natural Resources (TSX: CNQ). Despite an uncertain macro environment in 2023, CNQ reported record production levels, which resulted in a growing dividend and share buybacks.
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It achieved a record annual production of 1.33 million BOEs (barrels of oil equivalent) per day. This includes record liquids production of 973,500 BOE/day, while natural gas production stood at 2.15 Bcf per day. In 2023, CNQ’s total proved reserves rose by 2% to 13.9 billion BoE, of which 8.8 billion BoE are proved developed producing reserves.
The company’s proved plus probable reserves rose by 3% to 18.5 billion BoE. Additionally, 75% of total proved reserves are from long-life low-decline assets, while 50% of the reserves consist of high-value synthetic crude oil.
